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Mistakes in the Use of Single Invoice Discounting

SID, an acronym for Single Invoice Discounting, is a one-off transaction that involves the use of a particular and selected sales invoice to raise funds for commercial use. Many businesses make use of it given its numerous advantages, however, not everyone who does do it right. Today we shall discuss these blunders and hopefully help everyone avoid committing the said crimes.

But before we proceed, let’s get to know SID even more. Also known as Selective or Spot Invoice Discounting, it allows companies to advance the value of its sales invoice by up to a percentage majority of its value before the owing customer sends in payment. This happens almost instantaneously as many providers are able to release cash within twenty four hours at the least.

In such transaction, the company chooses the invoice and then uses it as collateral. The amount of the advance received shall depend on the value of the said invoice. The company then uses the funds as it pleases and then collects from the owing customer. Once collection is completed, the company has to repay the provider for the advance it has previously taken plus fees agreed upon at the onset of the transaction.

Now that we’ve got that covered, let’s proceed to the crimes committed against SID.

Mistake #1: Mistaking it for factoring. – Discounting and factoring are two distinct financing methods despite their very similar benefits. Factoring is a sale of the right to collect against the invoice with the collection burden shouldered by the provider and not the company.

Mistake #2: Contacting the wrong provider. – It is important to transact only with trusted SID companies to ensure that things go smooth and well. This necessitates ample research and going around to narrow down choices and then end up with the best.

Mistake #3: Failing to assess the invoice beforehand. – SID providers bank on customer instead of company creditworthiness. To cut the application time, make sure that you only use of credible and creditworthy customer sales invoices. This brings us to our next item.

Mistake #4: Don’t extend credit to everyone. – To make better value for your receivables, extend credit sales only to those who are capable of fulfilling their obligations. Screen your customers first before you allow them of deferred payment options. This benefits not only your Single Invoice Discounting transaction but your cash flows, receivables ageing and liquidity as a whole.